Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
  • Trading System
Originally published: 23/02/2021 17:22
Last version published: 04/03/2021 08:47
Publication number: ELQ-53114-3
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Trading System

For medium term traders. Providing daily trading signals using mix of technical indicators and historical price trends.

Description
This model is designed to support medium term traders who hold onto positions for days, weeks or even months. It is not intended for day traders or scalp traders.

It uses a mix of 7 among the most popular technical indicators, each one generating specific trading signals when prices reach pre-determined levels. In particular, a final BUY or SELL signal is generated when at least 3 out of 7 indicators get activated. They are as follows:

• RSI (Relative Strength Index)
• Simple Moving Average (applied to prices and volumes)
• Bollinger Bands
• Pivot Points
• ATR (Average True Range)
• MACD (Moving Average Convergence/Divergence)

A synthetic explanation of each indicator can be found in the Glossary.

Due to the extended time horizon, the aim is not to follow the trend but rather SELL when the price breaks above resistance and BUY when the price breaks below support. For the same reason, there is no need to rely on sophisticated charts to time market entry or exit.

The model uses historical daily prices imported by the user (going back upto 15 years max) plus user-specified technical indicators levels, to produce a simulation of historical trading returns (backtesting) based on the assumption that BUY and SELL occur on the first such signal. Stop losses are factored-in based on the original buying/selling price assumed by the model. Positions are opened both ends, short or long.

Such historical trading results are compared to stock appreciation over the same term, to evaluate profitability of trading strategy vs. buy and hold strategy.
If stock performance exceeds trading performance on most years, BUY & HOLD may be a better strategy than trading, for that particular stock.

Returns are shown in both, trailing and calendar year fashion. Average holding time of position as well as idle time between positions is also provided for completeness of information.

Once all technical indicators have been tuned-up to generate the best possible historical result for the desired lookback period, the idea is to keep on updating prices daily, executing trades upon the first BUY or SELL signal.

Even though price updates can be done (and trading signals obtained) at any time during the day, best would be to operate at closing time or at the opening of the next trading session, since technical indicators in the model look at historical closing prices.

TUNING-UP TECHNICAL INDICATORS
Detailed instructions for TUNING-UP technical indicators are illustrated in the 'INSTRUCTIONS' spreadsheet of the workbook.

The whole process should not take more than half an hour to complete, for the model to become fully operational and ready to generate trading signals upon your daily price updates.

IMPORTING HISTORICAL PRICES
Detailed instructions for importing historical prices are illustrated in the STEP-BY-STEP Methodology as well as in the 'INSTRUCTIONS' spreadsheet of the workbook.

TO KEEP IN MIND
No investment strategy generates profits all the time under any market conditions. Some years you earn and some years you may lose. Since this model is designed to produce best results in the medium term, what really matters is the global result over your entire investment horizon (should be at least 3-5 years).
Risk cannot be eliminated, but only mitigated through a solid and consistently applied trading strategy over an adequate time horizon. Therefore, second guessing the model's signals trying to maximise profits (or avoid realising losses) is not advised, since it might not produce the best results in the end.
While technical indicators look at price history on the assumption that similar price dynamics will repeat themselves in the future, there is no guarantee that past performances may be repeated.

This Best Practice includes
1 EXCEL WORKBOOK

Domenico Cristarella offers you this Best Practice for free!

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Further information

This model is designed to support medium term traders who hold onto positions for days, weeks or even months. It is not intended for day traders or scalp traders.
It uses a combination of 7 among the most popular technical indicators to generate daily trading signals.

Medium term traders/investors

Day traders / Scalp traders

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